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Commercial Lease Letter of Intent: What to Nail Before the Full Lease

By LeaseLens · May 2026 · 11 min read

You found the space. The landlord is interested. Your broker says it is time to put together an LOI — a letter of intent — before the attorneys draft the actual lease.

Most tenants treat the LOI as a formality. A preliminary document. Something to get through on the way to the real negotiation. That is a mistake that costs them months of leverage.

The LOI is where the deal actually gets made. The base rent, the tenant improvement allowance, the renewal option, the free rent period — these get set at the LOI stage. By the time the full lease arrives, you are fighting over language, not numbers. And the numbers you agreed to in the LOI are now the floor.

This guide covers what a commercial lease LOI is, which terms are binding, what you must nail before you sign one, and where landlords routinely leave things vague — on purpose.

What a commercial lease LOI is and what it does

A letter of intent is a short document — typically 1–5 pages — that summarizes the key economic terms both parties agree to pursue in the full lease. It is not the lease. It does not create lease obligations. But it establishes the framework both sides will use when the attorneys start drafting.

Think of it this way: the LOI answers the question "can we make a deal at all?" The full lease answers the question "exactly how will every edge case be handled?" By the time you get to the full lease, you have already agreed on how much you are paying and for how long. What remains is the fine print.

This is why the LOI matters so much. The fine print is important — it governs what happens when your HVAC breaks, whether you can sublease if you sell your business, how much your landlord can raise your rent annually. But the money terms are already locked. Trying to renegotiate rent in the full lease negotiation is a sign of bad faith, and landlords know it.

Which parts of an LOI actually bind you

Most commercial lease LOIs are explicitly non-binding on the economic terms. The document itself usually contains language like: "This letter of intent is not legally binding and does not obligate either party to enter into a lease. Either party may withdraw at any time prior to execution of a fully negotiated and signed lease."

That non-binding status does not apply to every provision. Three types of LOI clauses are commonly written as binding even when the rest is not:

1. Exclusivity or "no-shop" provisions

These prevent the landlord from showing the space or negotiating with other prospective tenants for a defined period (typically 30–60 days) while you complete due diligence. Landlords sometimes resist these; you should push for them. They protect you from being used as a bidding chip while the landlord courts a better-funded tenant.

2. Confidentiality clauses

Some LOIs include confidentiality obligations around deal terms. These are typically binding and worth reading carefully — they may prevent you from shopping the terms you achieved to other landlords for comparison.

3. Deposit obligations

If the LOI requires you to deliver a good-faith deposit — sometimes called an earnest money deposit — that obligation is usually binding. Understand the refund terms before you write any check.

The 6 terms you must lock in during LOI negotiation

Every commercial lease LOI should explicitly address these six terms. If any are left vague — or absent entirely — the landlord retains power to move the number in their favor during full lease negotiation. Treat these as the mandatory contents of every LOI you sign.

1. Base rent and annual escalations

The LOI should state your base rent in dollars per square foot (or total monthly rent) and define exactly how it increases each year. "Rent of $32 per square foot with 3% annual increases" is specific. "Rent to be agreed upon, with market escalations" is not an LOI — it is a starting gun for a future argument.

Watch for: "CPI adjustments" with no cap. If rent increases with the Consumer Price Index and the CPI spikes, your rent can spike. Negotiate a floor (typically 2–3%) and ceiling (typically 5–6%) on CPI adjustments.

2. Lease term and commencement date

How long is the lease? When does it start — on a fixed calendar date, or on a trigger like "substantial completion of tenant improvements"? If the latter, what happens if buildout takes longer than expected? Who pays your holdover costs if your current space expires before the new one is ready?

The LOI should specify the lease term in years, the commencement mechanism, and who bears the risk of delay. If buildout delays are the landlord's fault, you should have protections. If they are yours, you should understand the exposure.

3. Tenant improvement allowance (TI)

The tenant improvement allowance is the amount the landlord will contribute toward building out your space. It is typically expressed as dollars per square foot (e.g., "$60/sf TI") or as a total dollar amount.

The LOI should specify the TI amount, what it covers (construction only, or also design fees, furniture, technology?), what happens to unused TI (do you keep it? apply it to rent? lose it?), and whether TI is structured as a landlord-built allowance or a tenant-built reimbursement.

TI is one of the most significant economic concessions in a lease. A $50/sf TI on 3,000 sf is $150,000. Getting this number in the LOI versus leaving it to full lease negotiation is the difference between having it and not.

4. Free rent period

Most commercial leases include some free rent — a period at the beginning of the lease where you pay no base rent while you build out and ramp up operations. Typical ranges are 1–6 months for retail and office space.

The LOI should specify the number of free rent months and whether they apply to base rent only or also to NNN charges (operating expenses). "3 months free rent" and "3 months free base rent with NNN commencing on day 1" are very different outcomes.

5. Renewal option terms

A renewal option gives you the right — but not the obligation — to extend your lease at defined terms when your initial term expires. This is one of the most valuable protections a commercial tenant can have, and one of the most negotiated.

The LOI should address: how many renewal options you have, how long each renewal term is, what the rent is during renewal (fair market value? fixed? CPI-linked?), how far in advance you must exercise the option, and whether the option is personal to you or transferable.

"Fair market value" renewal options are the weakest form. They give you the right to stay — at whatever rent the landlord can negotiate at the time. Push for a defined formula (e.g., rent at renewal = base rent at expiration × 1.05) so you know your renewal economics now.

6. Exclusivity clause

If you are a retail or service business, an exclusivity clause prevents the landlord from leasing other spaces in the same building or complex to a direct competitor. A coffee shop might require that no other coffee shop be allowed in the building. A yoga studio might require exclusivity for fitness uses.

Exclusivity needs to be in the LOI because landlords will fight to keep it out of the lease entirely, or weaken it significantly if it appears only in full lease negotiations. Once the LOI is signed with exclusivity included, removing it is a concession the landlord must make — not something you are asking for fresh.

What landlords deliberately leave vague in LOIs

Experienced landlords (and their brokers) know that vague language in an LOI favors the landlord. Here is what to watch for:

"Market standard" language

When an LOI says terms will be "on a market standard basis" or "subject to landlord's standard lease form," it is a signal that the landlord intends to use their own form with minimal modification. What is "market standard" for a landlord is typically landlord-favorable. Push back and specify actual terms.

Undefined permitted use

The LOI should specify exactly what you are permitted to use the space for. A vague permitted use like "retail and office" can be used against you later when the landlord argues your actual business activity — running a tutoring center, or a massage practice, or a small manufacturing operation — falls outside the permitted use and triggers a default.

Be specific and broad: "Retail sale and service of [your product/service category] and any other lawful retail purpose." More detail here protects you; less detail gives the landlord ammunition.

Operating expense caps left out entirely

In NNN or modified gross leases, the LOI often mentions that the tenant will pay operating expenses — without specifying any cap on how much operating expenses can increase. A landlord-drafted full lease with no CAM cap means your operating expenses can rise 15–20% in a single year without any recourse.

Raise the CAM cap at the LOI stage: "Operating expense increases to be capped at 5% per year on controllable expenses" in the LOI gives you a baseline to enforce in the full lease.

Personal guarantee scope

Most landlords require a personal guarantee from individual business owners — especially on first commercial leases or leases to new entities. The LOI often mentions that a personal guarantee is required, without specifying: how long it lasts, whether it burns down over time, or whether it is limited to a dollar amount.

A 10-year full personal guarantee makes you personally liable for every dollar of rent if the business fails — potentially millions of dollars. A "burndown guarantee" might reduce exposure to 50% after year 3 and 25% after year 5. This is worth negotiating in the LOI before the attorneys have set it in stone.

How the full lease undoes LOI gains

Even when you negotiate a strong LOI, the full lease can claw back value through language. This happens in three ways:

1. Carve-outs that gut your protections

Your LOI says you have a renewal option at a fixed rate. The full lease adds: "provided Tenant is not in default at the time of exercise, and has not been in default more than twice during the initial term." Two late rent payments — even if immediately cured — could void your option. Watch for "no default" conditions attached to every right you negotiated.

2. Definitions that change the economics

Your LOI specifies TI of $60/sf. The full lease defines "square footage" using a measurement standard that produces a number 10% smaller than the space you toured. Suddenly your TI is $54/sf on what you thought was a $60/sf deal. Definitions matter.

3. Landlord discretion language

Your LOI establishes rent at $32/sf with 3% annual increases. The full lease adds a provision allowing the landlord to adjust operating expenses "in Landlord's reasonable discretion." The base rent is fixed — but operating expenses can drift, and "reasonable discretion" gives the landlord significant flexibility.

LOI checklist before you sign

Before signing any commercial lease LOI, confirm these items are addressed — with specific numbers, not placeholder language:

This is not a complete substitute for attorney review — commercial lease LOIs have legal implications that vary by state and specific transaction. But working through this checklist before signing ensures you have not left any major economic term to be filled in by the landlord's attorneys.

What the LOI stage is not for

The LOI is the right place to fight for numbers and major rights. It is not the place to fully resolve every clause. Save these for the full lease negotiation — they are important but the LOI is already the right format:

• Holdover provisions (what happens if you stay past lease expiration)
• Assignment and subletting rights (can you transfer the lease if you sell?)
• Force majeure and pandemic-type protections
• Landlord access rights and notice requirements
• Specific HVAC, signage, and parking rights
• Cure periods and default notice requirements
• Dispute resolution (arbitration vs. litigation)

These are real issues — some of them very expensive in the wrong circumstances. But they belong in the full lease negotiation, not the LOI. Trying to resolve them at LOI stage slows down the process and signals to the landlord that you are going to be an unusually difficult tenant.

Frequently asked questions

Is a commercial lease LOI legally binding?

Most commercial lease LOIs are non-binding on the economic terms. However, provisions like exclusivity periods, confidentiality, and deposit obligations are commonly written as binding. Read the LOI carefully and have an attorney confirm what binds you before signing.

Can you negotiate after an LOI is signed?

Technically yes — the LOI is non-binding on most terms. Practically, walking back LOI terms in the full lease negotiation signals bad faith and uses negotiating capital you need for other issues. Negotiate hard at the LOI stage. Once signed, the LOI terms become the floor for the full lease.

How long does the LOI process take?

LOI negotiation typically takes 1–3 weeks. After a signed LOI, full lease drafting and negotiation usually takes 4–8 weeks for straightforward deals, and 3–6 months for complex transactions with major TI work or multi-party approvals.

What if the landlord refuses to include something in the LOI?

If a landlord will not put a key term (like a renewal option or exclusivity clause) in the LOI, that is a signal — they may intend to fight you on it in the full lease, or omit it entirely. You can sign the LOI and raise the issue in full lease negotiations, but go in with your eyes open. "We will work it out in the lease" often means "we will try to avoid giving it to you."

Related guides

• How to Negotiate a Commercial Lease
• 12 Commercial Lease Red Flags Every Tenant Should Know
• Renewal Options Explained — How to Actually Protect Your Location
• Personal Guarantee in a Commercial Lease: What You Are Actually Signing
• What to Look for in a Commercial Lease (Full Walkthrough)
• Free Clause Checker — Paste any LOI or lease clause for instant analysis